Is the cannabis sector about to light up? Following the U.S. House Judiciary Committee’s monumental decision to approve the Marijuana Opportunity Reinvestment and Expungement (MORE) Act on Nov. 20, investor focus has locked in on this area of the market.
With the passage of this legislation, the cannabis industry takes a huge leap forward as the bill would remove marijuana from the Schedule I list of controlled substances as well as decriminalize it at the federal level. However, the bill wouldn’t legalize the substance.
“Today’s vote marks a turning point for federal cannabis policy, and is truly a sign that prohibition’s days are numbered,” executive director of the National Cannabis Industry Association Aaron Smith stated.
As 65% of Americans support the legalization of marijuana, according to a CBS News polling conducted in April, is now the time to snap up marijuana stocks? Wall Street seems to be advocating that investors do just that.
Analysts remind investors to focus on the names poised to soar through 2020. The most compelling investments can be the names making moves behind the scenes.
Using TipRanks’ Stock Screener, I was able to pinpoint five marijuana stocks that have been flying under the radar. While largely avoiding the spotlight, these names boast upside potential that demands attention. I’m talking in the triple digits.
Let’s dive right in.
OrganiGram (OGI)
OrganiGram (NASDAQ:OGI) is feeling the heat following its fiscal fourth-quarter earnings release.
During the quarter, the company posted a bottom-line miss. The net loss came in at 22.5 million CAD. The consensus estimate had pointed to a loss of only 1 cent per share. This news was even more concerning as it followed up a profit of 18.2 million CAD, or 12 cents per share, in the year-ago quarter. Management noted that an insufficient retail network as well as slower-than-expected store openings in Ontario were partly to blame for the disappointing performance.
That being said, OGI still has a lot going for it. The cannabis name operates out of a single facility located in New Brunswick, making it more efficient than some of its peers. Rather than opening giant new facilities, it has placed a significant focus on producing higher-quality cannabis. Not to mention the company has received licensing approval for 17 new growing rooms, which should bring annual production capacity to 76,000 kilograms.
Paradigm analyst Corey Hammill believes that this puts the company in a position to gain. OGI also stands to benefit from Cannabis 2.0, the legalization of cannabis derivative products in Canada. To this end, he reiterated his “buy” rating and $3.95 price target.
Looking at the consensus breakdown, six buys and three holds add up to a “moderate buy.” Its $6 average price target is the real star of the show here, though, indicating upside potential of 136%.
Harvest Health & Recreation (HRVSF)
“Not ideal” is the phrase being tossed around when describing Harvest Health & Recreation’s (OTCMKTS:HRVSF) performance in its most recent quarter.
The Arizona-based marijuana name announced its financial results for the third quarter on Nov. 20. The company reported that total revenue reached $33.2 million, up a whopping 197% from the prior-year quarter. However, adjusted EBITDA came in at a loss of $11 million, with both this figure and revenue falling below estimates.
Nonetheless, Beacon’s Russell Stanley reminds investors that there were positive takeaways. “We attribute the selling pressure on the stock to uncertainty with respect to Harvest’s balance sheet and access to capital, and based on management’s comments during this morning’s conference call, we believe the company’s asset base can support the additional debt required to accelerate growth,” he explained.
On top of this, Stanley argues that HRVSF is trading at a discount compared to other players. And several upcoming catalysts could catapult shares higher. While keeping the bullish call, he did reduce the price target to $11.29. Even at this lower target, the analyst thinks shares could skyrocket 341% in the next 12 months.
It has been somewhat quiet on the Street in terms of other analyst coverage. Its “moderate buy” consensus rating is generated from the two “buys” assigned in the last three months. In addition, the $11 average price target puts the upside potential just under Stanley’s forecast at 335%.
Cresco Labs (CRLBF)
Cresco Labs (OTCMKTS:CRLBF) is best known for being one of the largest vertically integrated, multi-state cannabis operators in the U.S. Its brands include Cresco, Reserve, Remedi, Mindy’s and WellBeings. As one analyst is expecting big things from the company in 2020, CRLBF might not be able to keep a low profile for much longer.
On the heels of its latest earnings report, shares slipped when investors learned that CRLBF missed the mark when it came to revenue. It doesn’t help that the company posted a net loss of $8.6 million in the third quarter, while reporting net income of $1.2 million in the prior-year quarter.
However, Cowen’s Vivien Azer still sees a strong long-term growth narrative as the company stands to benefit from its recently received Chicago licenses, ahead of full adult-use legalization in Illinois. “We expect that 2020 will be a transformative year,” she said. Bearing this in mind, the five-star analyst decided to stay with the bulls. In addition to the recommendation, her $9.79 price target brings the potential 12-month gain to 77%.
Meanwhile, Beacon analyst Russel Stanley highlights its possible acquisition of Tryke as an area to watch. Back in October, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 lapsed, meaning that the acquisition is one step closer to being completed. “We view the development as positive, while also noting that the absence of a second request for information indicates that the DOJ’s scrutiny of cannabis M&A may be moderating,” Stanley wrote in a note to clients.
Similarly, other analysts are optimistic when it comes to CRLBF. With five “buy” ratings issued in the last three months, the consensus is unanimous. The marijuana stock is a “strong buy.” Not to mention, the $13 average price target suggests shares could soar 136% in the coming 12 months.
Sundial Growers (SNDL)
Sundial Growers (NASDAQ:SNDL) operates facilities throughout Canada and Europe. SNDL expects to hit a worldwide capacity of 95 million grams by the end of 2020.
In its most recent quarter, the company was able to deliver net revenue of $33.5 million, a 74% gain on a sequential quarterly basis. On top of this, the amount of cannabis sold increased by about 70% from the second quarter of 2019. Still, its expansion efforts weighed on profits. As a result of its acquisition of United Kingdom-based agricultural indoor producer Bridge Farm in July, SNDL recorded a $97.5 million net loss.
Cowen analyst Vivien Azer tells clients that while she is updating her estimates, her bullish thesis remains very much intact. “We continue to favor SNDL given its pricing architecture, modular production grow and CPG-like category management,” she noted. To this end, Azer lowered the price target from $15 to $10. Despite cutting the target, she still sees 313% upside potential in store.
When it comes to SNDL, the rest of the Street’s take is a mixed bag. Split right down the middle, the consensus is a “moderate buy.” While not quite as lofty as Azer’s forecast, the $6 average price target indicates huge upside of 126%.
Green Thumb Industries (GTBIF)
Unlike the other cannabis companies on our list, Green Thumb Industries (OTCMKTS:GTBIF) impressed investors with its most recent quarterly performance.
Jumping 296% year-over-year, revenue for its third quarter landed at $68 million. While the company didn’t see a profit, it has definitely been making progress. Net loss dropped from $22.2 million in its second quarter to $17.1 million. Adding to the good news, total operating expenses as a percentage of revenue dropped from 72.6% in Q2 to 54% in Q3.
The solid performance was driven in part by its Integral Associates acquisition, as it expanded its reach in Nevada and California. Another key factor was that comparable sales for stores open at least 12 months were over 50% more than in the prior-year quarter.
All of this has left Cowen’s Vivien Azer very excited about GTBIF’s future. As such, the five-star analyst maintained her “outperform” rating and $17.50 price target. This implies that shares could rise 88% over the next 12 months.
Like Azer, Wall Street likes what it’s seeing. Out of the six analysts that have published calls in the last three months, 100% were bullish. Additionally, its $19 average price target lends itself to 102% upside potential.
TipRanks offers investors the latest insight into eight different sectors by tracking the activity of over 5,000 Wall Street analysts. As of this writing, Maya Sasson did not hold a position in any of the aforementioned securities.
